01 Apr Starting a Medical Practice
This Guide to Starting a Medical Practice has been developed to assist both doctors and
practice managers when setting up a practice.
It contains numerous practical tips and advice, and identifies the main issues connected to setting up and successfully running the practice. It has been identified as an area where practice managers and doctors alike have a keen interest, and a lot of important information is contained in the guide.
Starting a practice is probably one of the most significant professional decisions a doctor will undertake during their professional life.
“Starting a practice” or to “Buy into an existing practice” is a common goal for many doctors and health professionals.
Further reading is encouraged on the topics and will be identified throughout the guide.
The guide will equip readers with an understanding of the essential knowledge required in order to establish a practice, whether starting from scratch or purchasing an existing practice. Readers will recognise the importance of choosing the right structures and partners and will have acquired information regarding the legal requirements of practicing medicine.
General Advice Warning
This advice may not be suitable to you because it contains general advice which does not take into consideration any of your personal circumstances. Please arrange an appointment to seek personal financial and taxation advice.
Planning and implementing the set-up of a new practice requires a large investment of time.
It is important to plan ahead, projecting desired outcomes and deciding how these will be achieved. Thoughts will be very subjective and cover a wide range of personal and business themes.
Some doctors are in private practice for financial reasons; some are in private practice for purely altruistic reasons. However, most doctors are in it for both reasons: private practice represents the best way to balance legitimate lifestyle ambitions and aspirations, while doing what they are trained for: practicing medicine.
The range of issues to consider:
- Will the practice be successful?
- How will the practice differ from other practices?
- How much money will be made? Will it be worth the extra effort?
- Is private practice really the way to go?
- How much time will the practice consume? What is the desired work/life balance?
- Is buying into an existing practice a better option than starting a practice from scratch?
- Where should the practice be located?
- Is buying or leasing the practice premises a better option?
- Should practice equipment be bought or leased?
- Which is better – practicing alone or in a group?
- How much extra profit will be made?
- Will the practice be a business for tax purposes?
- What licences, consents and registrations are needed?
- Will the practice have a goodwill value?
- How will staff be employed?
- How many staff will be required?
- Should other doctors or health professionals be employed?
- Will there be any tax benefits to enjoy?
- Should a practice entity or a service entity be used?
- What insurances are required?
- What IT systems should be used; and
- How much will it cost to start a practice?
Delegate the Logistics
The tasks involved in setting up a practice should be delegated to a project manager;
Doctors are very busy and the opportunity cost of a practitioner undertaking this role is very high. It makes perfect sense to employ an experienced practice manager to set up the new practice. Parameters need to be set regarding the decision making processes. Issues regarding location and premises must be determined by the practitioner(s). However, once this is done, many of the other tasks can be delegated to an experienced practice manager. Their knowledge can assist in creating a practice that duplicates the most successful combination of ideas from their previous industry experiences.
When a group of practitioners come together,
it makes sense to nominate one of them to be the team leader. This person has authority to make decisions and to commit the other practitioners to expenditure up to an agreed limit. Obviously, major decisions need to be settled by the group. Appointing a team leader to act as the agent for the group avoids problems with indecisive committees and the ‘too many cooks syndrome’.
The authority should be in writing and may look something like the draft minute of a meeting of the practitioners set out in Appendix 1.
Preparing and signing a document like this gives each practitioner comfort that they will not be exposed to excessive costs and also gives the team leader comfort that he or she will not be left in a helpless situation and out of pocket if the project is cancelled for any reason.
Trust within group practices is imperative; if practitioners do not have enough trust in their colleagues to allow an arrangement as described above, it is clear that a long term business relationship will not succeed.
Most practices require practitioners to work with other practitioners. A true solo operator, particularly in general practice, is becoming rare. Obviously the relationship between the practitioners in the group needs to be documented, and these documents should be prepared carefully and only signed after much and adequate reflection and discussion. Practitioners should realise, however, that even the most elegant and eloquent documents cannot replace trust. Practitioners’ disputes, and hence practitioners’ documents, rarely end up in court. It just costs too much and it’s not worth the effort.
Nothing can replace trust and good faith in a group practice.
This is particularly important at the start of a new arrangement. Colleagues should be chosen well, and if any doubts are raised about them, it is probably best not to begin a relationship. However, before making any decisions, discuss concerns and attempt to eliminate them before the new practice starts.
Finding the right premises
Starting from scratch is a more difficult and daunting option than purchasing an existing practice, but it has the advantage of not having to pay for goodwill. It also has the advantage of having control over what happens, not being restricted by what has happened in the past or what other partners may decide to do.
Choosing the premises will impact on costs and long term sustainability as well as the level of risk and calculation of tax liability. It is important to consult with all relevant professionals; if not, it could have serious consequences to the future of the practice. Consideration needs to be given to whether the premises will be purchased outright or leased. A sound business plan will be required by most lending institutes before loans will be offered. Business plans generally include the following aspects:
Background information – purpose, structure and history
- Mission and objectives – what is to be achieved
- Practice position – market overview, competitors and patients
- Strengths – marketing, management, human resources, technology and finance
- Strategic Audit – situation analysis, competitive advantage, strengths, weaknesses, opportunities and threats
- Financial strategies – alternatives, recommendations, operations, marketing, and resources
- Implementation – goal setting and contingency factors.
As with a mortgage, a lease is a legally binding contract. Mortgages have set terms and conditions for repayments, fees and charges, breaches etc. Leases also have terms and conditions. It is advisable to include all elements agreed upon in the negotiation stage as part of the lease document. This will help avoid misunderstandings in the future and can be referred back to should a conflict arise. Short term leases are not recommended; it is advisable to include an option to renew the lease as part of the terms of the contract. This maximises the practice’s long term security yet maintains some degree of flexibility. It is also worth clarifying in advance which party is responsible for covering various costs such as repairs, security systems, building and contents insurances, rates, utilities, maintenance, etc.
The location of a new practice will be based on a number of personal and professional circumstances. These include the ability to practice unrestricted or restriction to districts of workforce shortage, financial constraints in relation to purchasing or leasing and council regulations. A permit to operate a medical practice will need to be obtained from the local council prior to purchasing or signing a lease. Many councils require specific numbers of off-street car parks to be available before providing a permit.
Location is the key to the practice’s success. It determines the patient demographics, such as age, disposable income, family make up and need for specialist services.
Detailed research will be required before deciding on the final location. Issues to be considered include:
- The number and size of practices in the area;
- Services provided by other practices
- Prospective clientele;
- Forecast population growth/decline
- Ratio of patients per doctor in the proposed area;
- The availability of specialist doctors in the area;
- Accessibility to clinic, for example, private or off street car park, public transport, visible main street location;
- Other public facilities in the area which could increase demand for services, such as public hospitals, community services, schools, crèches etc
- Availability for support services such as pharmacies, allied health professionals, radiography and pathology services
Physical aspects of setting up
Unless the practice is set up in a purpose built facility, it is very likely that renovations will be required. In most cases a lease will allow for renovation of the premises prior to commencing business operations. It is recommended to confirm what extent improvements can be made to the property and whether there are any conditions attached in the lease agreement. Clarification should also be sought as to the exact costs being incurred by the parties in preparing the practice for the public. Building and contents insurance should be taken out when the lease begins.
A successful practice requires detailed planning to ensure that the highest level of service is provided to patients. Deciding on the physical features of the practice could have multiple effects, impacting on prospective employees, occupational health and safety compliance, target market for patients, fixed expenses and the general atmosphere of the clinic.
Consider the needs of patients, health professionals and staff at the planning stage. Patient accessibility is vital to a medical practice. The practice must provide access for:
- Disabled parking;
- Prams and wheelchairs;
- Elderly people;
- Emergency vehicles;
- Taxis and other vehicles dropping off patients close to the clinic’s entrance
The practice layout should be efficient and able to accommodate all potential patients attending the clinic, the number of staff planned for employment and all medical and administrative equipment.
The physical layout of the practice should include a space that can be subleased for pathology collection. The benefits of this are twofold, firstly pathology companies will pay considerable rent and assist with the set up costs of the space, and secondly most pathology company sub-leases include free supply of consumables required for use in the collection centre.
The design should aim to make it comfortable and attractive to patients, however while the atmosphere in the clinic is important, efficient service and safety is more beneficial than its visual appeal.
Layout is also important for occupational health and safety reasons. If the layout is not carefully planned and bulky equipment is placed in a non-strategic way, staff or patients could get injured and the practice could be liable under the Occupational Health and Safety Act. Consideration should be given to designing each consulting room – placement of the examination couch, privacy screens, hand basins, equipment cupboards, desks and chairs, phone/computer outlets, power and lighting. The practitioner should always be positioned close to the door so aggressive or abusive patients can’t block the exit.
Security is a vital part of the planning process. Alarm systems should be installed when alterations are being made. Duress alarms are commonly used in each treatment area and at reception. These are discrete and silent when activated so as to not alarm the aggressor further. In most cases the alert flashes on the screen of all other computers in the building allowing assistance to be given immediately. Duress alarms are also useful when urgent medical assistance is required for a patient.
Plant and equipment
Before going on a shopping spree, a strict budget should be set to determine the items needed to make the practice work as opposed to the items desired. Office furniture, waiting room furniture, consulting room furniture and treatment room furniture can be purchased together. This will not only allow a better price to be negotiated, but also gives flow and continuity throughout the practice.
Prior to purchasing equipment a decision must be made about whether to lease or purchase some of the big ticket items, especially when newer more efficient models are being offered as upgrades at the end of the lease. These could include:
- Vaccine fridge
A cost/benefit analysis should be undertaken before settling on which option to take for sterilising. There are options for off-site sterilisation or onsite sterilisation. Alternatively disposable instruments could be an option, removing the need for a steriliser altogether.
Rather than making lists of equipment and consumables required for each consulting room it is advisable to contact at least three suppliers. In most cases the larger suppliers have already created these lists and will provide them to practices allowing for selection or deselection of items required, then provide quotes for the items selected. There are several advantages including time saved by not recreating the wheel, ensuring nothing has been missed, and competitive pricing options. Not all equipment and consumables have to be purchased from the same supplier, for example one supplier might have a special offer on height adjustable beds, while another has a special offer on disposable instruments.
Arrange service contracts
Prior to purchasing equipment, it is advisable to assess the safety rating of a particular brand and discuss the practice needs with the manufacturer.
Maintenance of equipment is important. Most equipment is supplied with recommended maintenance schedules and service providers. Always use a qualified electrician or technician who has wide experience in repairing and maintaining medical equipment. Some medical equipment companies will provide free servicing of the machine on offer, however if this is not the case it is highly recommended to arrange service contracts. This will also ensure you have fixed price servicing, but usually do not include any replacement parts required.
A diary or computer prompt should be used as a reminder when equipment is due for maintenance. Nursing staff are usually designated the task of tracking and recording maintenance.
Likewise service contracts will need to be arranged for medical waste and sharps disposal.
Information Technology and Management
It is imperative to spend time and money setting up information technology and information management correctly from the outset. Too many times practices “save” money by cutting corners with IT, and ultimately spend a lot more in a few years’ time when the system does not cope with the growing needs of the practice. If set up correctly in the beginning, an efficient information system can reduce cost, multiply efficiency and significantly improve patient’s satisfaction with the clinic.
When purchasing a server, it must be large enough to cope with all programs being installed, these include the practice management program, data extraction tools, bookkeeping and wages management programs, and should have a fast efficient internet connection. A common mistake is not allowing for growth or quickly outgrowing the initial system.
There are a number of bookkeeping systems to choose from in today’s current market. Each have their own benefits and at the end of the day the decision on which program to use may come down to personal preference or cost. The same can be said about practice management systems. At the very least a practice management system should have a capacity to book appointments, record and store all patient information/interactions/documents, have recall and reminder systems, enable billing directly through Medicare, and have the capacity to download results from external providers such as radiology and pathology providers.
Keep in mind that an information technology system is not something that can set up and forgotten about. It also needs to be managed with constant maintenance and upgrading to ensure it runs at the optimum level at all times, and keeps up with constant upgrades.
Reasonable steps must be taken to protect the data collected and minimise risks. This can be done by installing and maintaining virus protection programs and firewalls. Daily backup systems should be in place and taken offsite, and many practices are now utilising cloud based backups as another level of protection. The following diagram provided by Jose Health IT shows how data can be at risk and the importance of backing up and having a data restoration plan.
Planning staffing numbers and roles is an essential part of the setting up process. Accreditation standards state that a GP cannot practice without at least one other staff member in the building.
The practice manager is usually the first person to be hired. Often this person will begin the role before the practice opens. A good manager will shoulder the responsibility of ensuring all tasks are undertaken in a timely and efficient manner.
Once the practice opens the practice manager, together with the practice principal/s will evaluate what positions need to be filled and what the responsibilities and expectations of each position will be. Initially when the practice is developing, it is not uncommon for the manager to work the reception desk as well. But as patient numbers grow and the practice develops, further reception staff will be required. The manager is responsible for training and performance managing other staff. Other important roles to consider filling are practice nurse, additional GP/s, allied health professionals, and cleaning staff.
Consideration needs to be given to whether staff will be employed in casual or permanent positions, and what rates of pay will be offered. Human resources laws dictate minimum pay rates and conditions under the Fairwork Act 2009. Not too many practices pay staff the award rate, as it is important to motivate staff to work hard and take pride in their work, assisting to grow the practice.
There are a number of traps for first time employers, and advice should be sought if there is any doubt.
All staff, except nurses, employed in a medical practice are covered by the Health Professionals and Support Services Award 2010.
All employees must have an employment contract setting out the terms and conditions of their employment. Casual employees are to be paid an additional 25% loading to compensate for not receiving annual leave or sick leave entitlements, although the practice must still pay superannuation contributions for these employees at the prescribed rate and include them in Workcover calculations. Casual staff also accrue long service leave entitlements.
Permanent part time staff have set hours, and when asked to increase these hours to cover other staff leave, must be paid at time and a half, unless their base hourly rate is high enough to ensure they are better off overall by continuing at their normal hourly rate. Calculations need to be made as to how many additional hours will likely be needed to be covered each year. Generally $2-$3 per hour over award rate is sufficient to ensure the employee will not need to be paid at the overtime rate. Although paying a higher hourly rate increases weekly outgoings, in the long-term it is better for cash flow not having to pay large sums of overtime payments while staff are on leave.
Any staff working more than 38 hours per week are paid overtime rates of time and a half for every additional hour worked. Any staff working Saturday mornings are also paid the overtime rate, whether they are casual or permanent. For these reasons many practices opt for a permanent role for the manager, keeping his/her hours to 38 per week, and casual roles for reception and administrative staff.
Nurses can bring immense value to the clinic by reducing the workload of doctors in areas such as chronic disease management, immunisation, home medicine reviews, triage, wound dressings, ECGs and much more.
The nurse can increase the range of services offered by the practice and enhance patient satisfaction whilst freeing up the doctor’s time. Nurses are employed under the Nurses Award 2010, and are subject to additional terms and conditions as set out in their award. Their hourly rate is usually considerably higher than admin staff and they must also be paid 17.5% leave loading when taking annual leave. However they attract an incentive payment through the Practice Nurse Incentive Program. Practices can employ Enrolled Nurses, whose hourly rate is often about the same as admin rates, however Enrolled Nurses must be supervised either directly or indirectly by a Registered Nurse. Therefore the benefit of employing an Enrolled Nurse is only viable if he/she is the second nurse in the practice. Also, the incentive payment for Enrolled Nurses is half the amount of Registered Nurses.
Additional GPs and Allied Health Professionals are generally not employees and taken on as independent contractors in the practice. This means they are paid an agreed percentage of the total amount of fees they generate. These health professionals are not required to have an employment contract, as they are not employees and are not paid under the Fairwork human resources guidelines. Rather a letter of engagement should be given outlining the terms of their tenure. These should include the agreed start date, the agreed hours, their entitlements and the services supplied by the clinic. As these health professionals are not employees the clinic does not pay superannuation for them, nor do they include them in the Workcover calculations, as they should have their own insurances to cover any illness/injuries.
Advantages of adding GPs and Allied Health Professionals to the team include the additional passive income the practice is earning from them, often without increasing fixed costs. As of 1st July 2019, Allied Health Professionals will be included in the Practice Nurse Incentive Program (PNIP), which will change to the Workforce Incentive Program (WIF).
Each employee, whether casual, permanent or a contractor must have an individual file containing the following documents:
- Personal details and emergency contact
- Original CV and application
- Transcript of interview and reference checks
- Position Description
- Signed employment contract or letter of engagement
- Any amendments to the contract – signed
- Copies of all qualifications
- Evidence of continued education undertaken
- Training schedule for ongoing education
- Copies of Indemnity Insurance – if applicable
- CPD statements from appropriate bodies
- Evidence of induction training
- Evidence of WHS, security and clinical policies and procedures
- Signed privacy statement
- Signed record of immunisation
- Any information provided about pre-existing conditions
- Employment declaration form – for employees
- Choice of superannuation form – for employees
- Direct payment details for wages form
- Authority to deduct any payments – when applicable
- Details of any pay increases and/or changes to pay classification
- Copies of staff appraisal forms
- Details of formal discussions, agreements or disciplinary actions
- Record of how/why employment was terminated – i.e. resignation letter
These files can be paper based or electronic.
Marketing your medical practice
Marketing your medical practice is vital. For many years, marketing of medical practices did not take place; it was not considered appropriate. However, with the vast changes taking place in the health care environment, it has become an important strategy for practices to identify the needs of their patients and adapt to those needs. Marketing strategies aimed at increasing the market share are becoming more and more popular amongst practices. A marketing plan will integrate a systematic approach to developing the practice and the provide services the community requires.
Marketing plans go further than simply developing a logo, putting up signage, printing letterheads and business cards, creating practice information leaflets, designing a website and arranging feedback. A good marketing plan sets clear, realistic and measurable objectives, includes deadlines, provides a budget and allocates responsibilities. A plan can consist of these elements:
- Analysis of the current market
- The practice objectives
- Point of differentiation
- Key strategies
- Steps to achieving the objectives
- Proposed budget
A sound marketing strategy outlines how the practice will differ from others in the area, what will attract patients to this clinic and how and why this will work. The plan will define the target patients and what they need. This will include age, gender, social status, education and attitudes. It will examine their lifestyles, activities, values, needs, and where are they located. It will also examine what other practices offer, their strengths and weaknesses and how the services provided can be aligned with the patient needs.
Marketing plans remain an ongoing business activity throughout the life of the practice. Constant reviews need to be undertaken and feedback from new patients should be recorded. One way of tracking how new patients have found the practice is to add a line on the bottom of the New Patient Information Form asking “How did you hear about us?” This allows tracking of which marketing activities are the most successful, and which are not worth continuing with.
Practice accreditation is a formally recognised benchmark across the health industry and provides the highest standards for safety, efficiency and minimising risk.
Whilst it is not yet compulsory, accrediting the practice with a recognised body is highly recommended and will reassure all stakeholders that the clinic has met the highest standards required to operate safely as a medical services provider. This will have a direct impact on the practice reputation and the reputation of the doctors within it.
Becoming an accredited practice provides a number of advantages including participating in Practice Incentive Programs. New practices should register for accreditation immediately after opening. The clinic is offered twelve months to finalise the process and become fully accredited. During this enrolment period the practice is eligible to receive full PIP/PNIP/SIP incentives. There are costs involved in becoming accredited, however the financial rewards far outweigh the initial expense. Accreditation also provides each GP in the practice with 20 group 2 CPD points.
Accreditation requires a series of written policies and procedures giving all staff clear guidelines of protocols undertaken within the practice, and ensuring tasks are undertaken in the exact same manner every time regardless of who is performing them. Templates can often be purchased and personalised for the clinic, saving the time and effort of starting from scratch. Self-assessment activities are undertaken online and evidence can also be submitted online.
Accreditation standards are constantly reviewed and upgraded. At the time of writing all new practices are required to become accredited under the 5th edition standards.
Following the accreditation guidelines when setting up a new practice will ultimately simplify the accreditation process and reduce the stress during the evaluation process.
Minute of meeting of practitioners involved in the New Practice Project held at 1 Brown Street Brownsville on 1 December 2013
The minutes of the previous meeting were read and confirmed as correct.
It was agreed that Dr Green has the authority to incur costs on behalf of the group up to a limit of $20,000 and that each practitioner will share one quarter of this cost and will pay his or her share to Dr Green within seven days of being asked to do so.
Dr Green was authorised to do all things necessary to implement the decisions of the group regarding the proposed lease of the premises at 100 Brown Street Brownsville and all other decisions regarding the start of a new practice including forming a partnership and setting up a service entity and employing a new practice manager to project manage the set up of the new practice.
There being no other business the meeting closed.
Signed as a true and complete record of the meeting.
Dr Green ……………………………..
Dr Red ……………………………..
Dr Blue ……………………………..
Dr Purple ……………………………
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